Advanced Financial Modeling

What Is Advanced Financial Modeling?

There are three main types of advanced financial modeling: (1) a detailed operating model, (2) a leveraged buyout (LBO)Leveraged Buyout (LBO)A leveraged buyout (LBO) is a transaction where a business is acquired using debt as the main source of consideration. An LBO transaction typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70-80% of the purchase price) to achieve an internal rate return IRR >20% model, and (3) a merger & acquisition (M&A) model. Each of the three types comes with its own unique challenges and complexities. With operating modelsOperating Cash FlowOperating Cash Flow (OCF) is the amount of cash generated by the regular operating activities of a business in a specific time period. The operating cash flow formula is net income (form the bottom of the income statement), plus any non-cash items, plus adjustments for changes in working capital, they’re the drivers of the business; with LBO models, they’re the debt finance and capital structureCapital StructureCapital structure refers to the amount of debt and/or equity employed by a firm to fund its operations and finance its assets. A firm's capital structure; and with M&A models, they’re the combination of the businesses.

Additional Questions and Answers

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In order to become a great financial analyst, below are some additional questions and answersKnowledgeCFI self-study guides are a great way to improve technical knowledge of finance, accounting, financial modeling, valuation, trading, economics, and more. for you to explore further:

What is sensitivity analysis?What is Sensitivity Analysis?Sensitivity Analysis is a tool used in financial modeling to analyze how the different values for a set of independent variables affect a dependent variable

What is bookkeeping?AccountingOur Accounting guides and resources are self-study guides to learn accounting and finance at your own pace. Browse hundreds of guides and resources.

What are the most common valuation methods?Valuation MethodsWhen valuing a company as a going concern there are three main valuation methods used: DCF analysis, comparable companies, and precedent transactions. These methods of valuation are used in investment banking, equity research, private equity, corporate development, mergers & acquisitions, leveraged buyouts and finance

Example Excel Model

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